Days Sales in Inventory (DSI)
Understanding the Days Sales in Inventory (DSI) Ratio: Measuring Inventory Turnover Time
The Days Sales in Inventory (DSI) ratio is a financial metric that measures the average number of days a company takes to sell its entire inventory during a specific period. It indicates how quickly a company can convert its inventory into sales. A lower DSI value suggests efficient inventory management and quicker sales.
DSI = (Average Inventory/Cost of Goods Sold (COGS)) × 365
Suppose Company VWX has the following financial details:
Cost of Goods Sold (COGS): $900,000
Beginning Inventory: $200,000
Ending Inventory: $300,000
To calculate the Days Sales in Inventory:
Calculate the average inventory: (200,000+300,000)/2=250,000
Divide average inventory by COGS and multiply by 365: (250,000/900,000)×365≈101.39
A DSI of approximately 101.39 days indicates that Company VWX takes about 101 days on average to sell its inventory. This suggests the time taken to convert inventory into sales.
Efficiency Ratio